Chapter 8 Smartbook

A company has three operating segments with the following amounts of profit or loss: Segment A, profit of $1,000; Segment B, profit of $2,500; Segment C, loss of $4,000. The quantitative threshold for determining a significant operating segment under the profit or loss test is

$400.

A company has six operating segments with combined total revenues of $500 million. An operating segment is separately reportable if its revenues exceed

$50 million.

ABC Company reports sales revenue of $1,000,000 in its consolidated income statement. The aggregate amount of sales revenue that must be disclosed by individual operating segments is

$750,000

A company has three operating segments with a combined profit of $900 and one operating segment with a loss of $200. The quantitative threshold for determining a significant operating segment under the profit or loss test is

$90.

To determine whether an operating segment is significant enough to require separate reporting an entity must apply

- a revenue test. - an asset test. - a profit or loss test.

The criteria that must be met for a component of an enterprise to be identified as an operating segment are that it

- generates revenues and incurs expenses. - is regularly reviewed by the chief operating decision maker. - has discrete financial information available.

An enterprise must report the amount of sales revenue generated

- in all foreign countries in total. - in its home country.

Under U.S. GAAP, in preparing quarterly reports, a company must disclose for each operating segment the amount of

- intersegment revenues. - revenues from external customers. - segment profit or loss.

For all foreign countries in total, an entity must disclose

- long-lived assets. - external revenues.

In interim reports companies must disclose

- provision for income taxes. - sales or gross revenues.

An enterprise must provide disclosures for each foreign country in which it has a material amount of

- revenues from external customers. - long-lived assets.

For each separately reportable operating segment, an enterprise must report

- revenues from sales to external customers. - revenues from intersegment sales. - profit or loss. - total assets.

The denominator in applying the revenue test to determine whether an operating segment is significant should include

- revenues from sales to other segments. - revenues from sales to outside customers.

Companies must disclose differences in measuring

- segment profit or loss and consolidated income before tax. - segment assets and consolidated assets.

An entity must explain that way it measures

- segment profit or loss. - segment assets.

If an entity has a major customer it must disclose

- the amount (or percentage) of revenue generated from that customer. - the operating segment that generates revenues from that customer.

Authoritative literature requires an entity to disclose revenues from external transactions from each of its products and services

- when its operating segments are not based on products and services. - unless it is impracticable to do so. - even if it has only one operating segment.

ABC Company has three segments that had the following amounts of profit or loss in the current year: 10,000 profit, 30,000 profit, and 5,000 loss. What is the amount of profit or loss that a segment must have to meet the profit or loss test?

4,000

A difference between IFRS and U.S. GAAP with respect to reporting by operating segment is

IFRS requires disclosure of segment liabilities but U.S. GAAP does not.

With respect to reporting long-lived assets by geographic area,

IFRS specifically indicates that intangible assets are included in long-lived assets but U.S. GAAP does not.

Unlike U.S. GAAP, for interim reporting purposes, IFRS requires each interim period to be treated as

a discrete accounting period in its own right.

Under U.S. GAAP, segments are identified based upon

a management approach.

A company pays its annual income taxes in December of each year. Under IFRS, tax expense should be

accrued at the end of each interim period

A company pays its annual license fee to the local county government in the second quarter of each year. The total fee paid should be

allocated as expense in equal amounts to each quarter of the year.

When an entity has a matrix organization, U.S. GAAP requires operating segments to be based on products and services rather than geographic areas. In this situation, IFRS

allows operating segments to be based on either products and services or geographic areas.

To recognize income tax expense at the end of each interim period a company must estimate what it believes _____ its effective tax rate will be.

annual

To recognize income tax expense at the end of each interim period a company must estimate what it believes its _____ effective tax rate will be.

annual

In preparing interim reports, companies should treat each interim period

as an integral part of an annual period.

The three quantitative threshold tests for identify separately reportable operating segments are (1) a revenue test, (2) a profit or loss test, and (3) a(n) _____ test.

asset

In the third quarter of the current year, a company decides to change its accounting method related to inventory. The company is able to calculate the impact that the new method would have had on the first and second quarter financial statements if the new method had been adopted at the beginning of the year. The company should use the new accounting method

beginning in the third quarter of the current year and restate amounts reported in the first and second quarters for the accounting method change.

Segment reporting provides information about the different

business activities in which an enterprise engages.

The denominator in applying the asset test to determine whether an operating segment requires separate disclosure is

combined assets of all operating segments.

An operating segment is reportable based upon the revenue test if its

combined external and internal (intersegment) revenues are 10% or more of combined external and internal revenue of all reported operating segments.

An entity must disclose any difference between how it measures profit or loss by segment and how it measures

consolidated income before income taxes.

In interim reports companies are not required to disclose

cost of goods sold.

For each separately reportable operating segment, an enterprise must report

depreciation expense.

The management approach to determining an enteprise's segments focuses on the manner in which management

disaggregates the enterprise for making operating decisions.

In applying the profit or loss test to determine whether an operating segment is separately reportable, authoritative literature

does not prescribe any specific measure of profit or loss to use in applying the test.

A company with international activities must disclose revenues and long-lived assets located in the _____ country and in all foreign countries in total.

domestic

An objective of segment reporting is to provide information about the different

economic environments in which an enterprise operates.

A company should estimate its annual _____ tax rate in calculating income tax at the end of each interim period.

effective

A company with a December 31 year-end plans to pays its president a bonus at the end of December. The bonus will be based on the current year's year-to-date income at the time the bonus is paid. The company should

estimate the amount of bonus to be paid in December and recognize 1/4 of this amount as expense in the first quarter of the year.

Companies must disclose the seasonal nature of their business operations when they

experience a spike in sales volume in one specific quarter each year.

Revenues from _____ customers and long-lived assets must be disclosed for the domestic country and for all foreign countries in total.

external

Operating segments that are individually significant and otherwise separately reportable may be combined if they

have essentially the same business activities in essentially the same business environments.

A cost that is incurred in the second quarter of the year but which benefits all four quarters of the year should be recognized as an expense

in all four quarters of the year.

In accordance with FASB ASC 270, for interim reporting an annual bonus should be recognized as expense

in each of the four quarters of the year on a prorated basis.

When an interim period is treated as a discrete period in its own right, bonuses paid to key employees in December are recognized

in total in the fourth quarter of the year.

In accounting for expenses that occur unevenly throughout the year, such as an annual bonus, the FASB requires interim periods to be treated as _____ parts of the annual period.

integral

An operating segment is significant based on the asset test if

its assets are 10% or more of the combined assets of all operating segments.

A customer from whom an enterprise generates 10% or more of total revenues is referred to as a _____ customer.

major

A company using LIFO to account for inventory sells more units of product in the first quarter of the year than it produces, which results in a LIFO liquidation. However, by the end of the year, the company expects there to be no LIFO liquidation. In preparing its first quarter financial statements the company should

make an adjustment to cost of goods sold to offset the effect of the LIFO liquidation.

The _____ approach is used to determine an enterprise's operating segments.

management

A company must report revenues from transactions with external customers for each country in which it has a _____ amount of external revenues.

material

ABC Company owns four restaurants that serve breakfast sandwiches in four different cities. The economic environment in the four cities is similar, but each restaurant meets the definition of an operating segment. ABC Company

may combine the four restaurants into one reportable segment.

An entity's operating segments measure pension expense on a cash basis (i.e., the amount of cash contributed to the pension fund), whereas, in preparing consolidated financial statements, the entity must measure pension expense on an accrual basis in accordance with GAAP. In this situation, the amount of pension expense used in reporting segment profit or loss must be

measured on a cash basis.

In interim reports, operating segment information

must be provided for revenues (external and intersegment), and segment profit or loss.

ABC Company has only one operating segment but conducts business in the U.S. and Mexico. ABC Company

must disclose revenues from its Mexican business, if the amount is material.

A company has eight operating segments, five of which pass one or more quantitative thresholds to be considered separately reportable. The five separately reportable operating segments have 70 percent of total company consolidated sales to outside customers. The company

must separately report additional segments until the total combined sales of reported segments is at least 75 percent of consolidated sales.

A company's operating segments are separately reportable when total segment assets are $5 million. The company's total assets must be

no higher than $50 million.

When an interim period is treated as an integral portion of an entire year, bonuses paid to key employees in December are recognized as expense

on a proportionate basis in each of the four quarters of the year.

A component of an enterprise that recognizes revenues and expenses, is regularly reviewed by the chief operating decision maker, and has discrete financial information is a(n) _____ segment.

operating

Treating an interim period as an integral part of an annual period results in expenses paid in one interim period that relate to the entire year being recognized as expense

proportionately over all interim periods of the year.

A company pays its annual property tax expense in March of each year. Under IFRS, property tax expense should be

recognized in full in the first quarter of the year.

A company makes an accounting change in the third quarter of the current year. That change must be applied _____ to the first and second quarters of the year.

retrospectively

A toy manufacturing company makes more than one-half of its annual sales in the fourth quarter of the year when customers place orders for the holiday season. In accordance with FASB ASC 270, the company must disclose the _____ nature of its business operations.

seasonal

The objective of _____ reporting is to provide information about an enterprise's different business activities and operating environments.

segment

An operating segment is significant if its assets are _____ percent or more of the combined assets of all operating segments.

ten

An operating segment is significant if its total revenues are _____ percent or more of the combined total revenues of all reported operating segments.

ten

An operating segment is defined as a component of an enterprise

that generates revenues and incurs expenses.

Under the management approach the determination of segments is based on

the organization structure of an entity.

For each separately reportable operating segment, an enterprise must disclose

total assets.

An enterprise must disclose unusual items included in segment profit or loss only if

unusual items are included in the profit or loss measure regularly reviewed by the chief operating decision maker.

ABC Company's operating segments use a cash basis of accounting to determine the amount of pension expense included in the measure of segment operating income reported to corporate headquarters. Adjustments are made at corporate headquarters to convert segment pension expense from a cash basis to an accrual basis for inclusion in the company's U.S. GAAP consolidated financial statements. In accordance with authoritative guidance, ABC Company must report segment profit or loss for each operating

using pension expense determined on a cash basis.

A company has six operating segments that have combined total assets of $100 million. Each operating segment is separately reportable whose total assets are at least equal to

$10 million.

ABC Company has 3 operating segments with the following revenues: Segment A, external sales revenue of $800; Segment B, external sales revenue of $400 and intersegment sales revenue of $200; Segment C, intersegment sales revenue of $100. The quantitative threshold under the revenue test for a segment to be significant is

$150.

Some companies are organized and provide segment disclosures on the basis of geographic areas only. An example of such a company is

Apple. McDonald's.

A company that operates in only one segment and therefore does not provide segment information does not need to provide information about its foreign operations.

False

A segment is separately reportable if its total revenues (both internal and external) are equal to at least 10% of an entity's combined revenue of all reported operating segments (both internal and external).

True

Even if an enterprise has only one operating segment it still must report the amount of revenue generated by each of its major products and services.

True

True or false: Gross profit in the first quarter of the year should not reflect the effect of a LIFO liquidation if the company does not expect the LIFO liquidation to continue until the end of the year.

True